TMI Blog2017 (1) TMI 1822X X X X Extracts X X X X X X X X Extracts X X X X ..... mark to market (MTM) refers to losses computed as on a particular date with reference to prevailing Exchange rates in respect of contracts that have not matured and are open contracts, such loss are required to be taken cognizance of. We concur with the view of the CIT(A) that the loss incurred is a real loss and not mere a notional loss of provisional nature. In the ultimate analysis there is no revenue effect and only concerns the timing of taxation of loss/profit. Accordingly, we decline to interfere with the order of the CIT(A). Addition of interest expenses - advance to certain parties for raw-material - as per AO business expediency for such advances have not been established and treated the advance given by the assessee as non-business purpose and invoked the provisions of section 36(1)(iii) - CIT(A) deleted the addition - HELD THAT:- We do not find any infirmity in the action of the CIT(A) in deleting the disallowance of interest. With the assistance of the Ld.AR, we note that the interest-free own funds is far more in excess vis- -vis interest-free advance. In these facts, it is difficult to draw presumption adverse to the assessee. We therefore decline to interf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess and therefore, was allowable as a loss in computing the total income. 3. CIT(A) also held in facts of the case and provision of law interest of Rs. 42,79,397/- was allowable expenditure in computing the total income. 3. Facts apropos to ground No.1 of the Revenue s appeal are that the assessee-company is engaged in the business of manufacturing and trading of steel Iron products. In the course of assessment proceedings under section 143(2) of the Income Tax Act, 1961 (hereinafter referred to as the Act ), It was noticed by the Assessing Officer (AO) that the assessee-company had claimed Foreign Exchange Loss of Rs. 196.93 lacs. The AO held that Foreign Exchange Fluctuation loss amounting to Rs. 36,51,099/- was notional loss and not actual loss on the ground that forward contract in respect of impugned loss were outstanding as on 31/03/2009 and remained unsettled and therefore loss was not crystallized as on 31/03/2009. The CIT(A) after examining the issue threadbare accepted the claim of the assessee placing reliance upon the decision of the Hon ble Supreme Court in the case of CIT vs. Woodward Governor India (P) Ltd. reported at (2009) 312 ITR 254. 4. The rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts and hence, instructions of CBDT vide No. 3 of 2010 dated 23-3-10 is not applicable to the fact of our case. We further state that the instructions under reference are not relevant also because of the fact that they are contrary to the ruling of Hon. Apex Court and other Hon. Courts and because it takes away the discretion of the AO and hence, the same is Ultra virus and not binding even upon the AO. On the contrary, since we are a limited company we are oblige to prepare our accounts under Mercantile System of Accountancy and Accounting Standard including AS-11 announced by ICAI are mandatory. As per AS-11 (pages 29 to 46), we have to recognize loss arising on account of exchange rate fluctuation as on 31st of each financial year. This loss is an ascertained, accrued and quantified loss/liability as on 31st March 2009 in our case as exchange rate as on 31-3-09 is already announced. Therefore, in making provisions of the loss, there is no contingency of an event to happen or not happen at a futuristic date. The amount in question is not a notional loss because as per the clear accounting principles and mandatory accounting standards of CAI, loss has accrued and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate that if gain arising from foreign exchange fluctuation is Taxed as our Income as per order u/s. 143(3) for A.Y.08-09 (pages 71 to 74), on the same principles, loss arising on account of foreign exchange fluctuation has to be allowed as a deduction. We lastly state that the loss in question has occurred in the transactions with Gulf Triangle Mining. From copies of accounts enclosed (pages 62 to 65), it may be verified that in A Y. 2008-09, there -was a gain-which is offered as income and it is accordingly taxed. Further, we have ultimately written off the amount payable to the above party which is credited to Profit Loss account and taxed as our income u/s. 41(1). The loss disallowed in A.Y. 09-10 has therefore, resulted in double taxation which is against the principles of equity and natural justice. We therefore request your Honour to allow the deduction of foreign exchange fluctuation loss and oblige. 19/04/2013 In support of our contention that foreign exchange fluctuation loss is an accrued, ascertained and quantified loss, we have relied upon the decision of Hon'ble Supreme Court in the case of CIT vs. Woodward Governors reported in, 312 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e paper book filed alongwith letter dt. 23/3/'13. CONDITION No. 5. Whether the method adopted by the assessee for making entries in the books both in respect of losses and gains is as per nationally accepted accounting standards; OUR FACTS. The method adopted by us for making entries in the books both in respect of losses and gains is as per nationally accepted accounting standard viz. Accounting Standard-11 announced by the Institute of Chartered Accountants of India. We have demonstrated this vide paragraph 7 of our letter dated 23-3-2013 and particularly pages 29 to 36 filed alongwith our letter dated 23-3-2013. CONDITION No. 6 Whether the system adopted by the assessee is fair and reasonably or is adopted only with a view to reducing the incidence of taxation. OUR FACTS The system adopted by us is fair and reasonable and it is not only with a view to reducing the incidence of taxation because we have not only accounted for foreign exchange fluctuation loss but we have also accounted for foreign exchange gain and recognised the same as our income on year to year basis as may be applicable. In the light of the above circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no interference with the order of the CIT(A) is called for. 8. We have carefully considered the rival submissions and the orders of the authorities below. The AO has disallowed Foreign Exchange Fluctuation loss relatable to contracts which remained unsettled and unexpired till the end of the relevant Financial Year. We have gone through the order of the CIT(A) and do not find any error in the conclusion thereon by the first appellate authority. We concur with the view taken by the CIT(A) placing the reliance upon the decision in the case of CIT vs. Woodward Governor India (P) Ltd. (supra) which clinches the issue. We also simultaneously note that gains on the similar transactions were returned in the earlier AY 2007-08 which has been merrily accepted by the Revenue. Therefore, the Department ought not to have taken a different stand in similar circumstances in the subsequent year. While mark to market (MTM) refers to losses computed as on a particular date with reference to prevailing Exchange rates in respect of contracts that have not matured and are open contracts, such loss are required to be taken cognizance of. We concur with the view of the CIT(A) that the loss incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. As mentioned earlier, the assessee has also filed memorandum of cross objection in Revenue s appeal in ITA No.2013/Ahd/2013 for AY 2009-10. 15.1. We note that the grounds raised by the assessee are merely to support in the order of the CIT(A). 16. Since the appeal of the Revenue stands dismissed, the Cross Objection of the assessee is also rendered infructuous and does not call for any specific adjudication. Resultantly, the Cross Objection of the assessee is dismissed as infructuous. ITA No.2014/Ahd/2013 for AY 2010-11-Revenue s appeal and CO No.7/Ahd/2014 for AY 201011-Cross Objection by Assessee. 17. The relevant grounds of appeal raised by the revenue read as under:- 1) The Ld. Commissioner of income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of Rs. 46,26,000/- made on account of interest expenses. 2) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs. 12,71,143/- made on account of employees contribution to Provident Fund / ESIC. 17.1. Likewise, the Assessee has raised following grounds in its Cross Objection:- 1. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transaction date Description Cheque No. Cr/Dr Transaction amount 28/03/2008 Tr. To Mahavir Enterprise 336459 Dr 1,55,00,000/- 28/03/2008 Tr. from Shah Alloys - Cr 1,00,00,000/- 28/03/2008 Tr. from Shah Alloys - Cr. 50,00,000/- 28/03/2008 Tr. to Mahavir Enterprise 336500 Dr. 1,45,00,000/- 28/03/2008 Tr. from Shah Alloys - Cr. 1,00,00,000/- 28/03/2008 Tr. from Shah Alloys - Cr. 50,00,000/- 02/04/2008 Tr. from Shah Alloys - Cr. 50,00,000/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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